March 2018 Property Update
Once a source of fevered coffee break chats, meteoric rises in house prices have largely disappeared in recent months and no longer grab headlines or provoke fear in buyers the way they did just short time ago. Whilst rapidly rising home prices seem to be a thing of the past, at least at present, prices have continued to rise at more modest rates in most parts of the country (6.9% nationwide from February 2017 according to REINZ*).
On a national level the new Government has indicated a desire to restrict foreign buyers from purchasing in New Zealand and cut immigration, both of which they feel would create less demand for housing, helping local buyers. Whether that is true or not is open for debate, but neither step has yet eventuated and the recent loosening by the Reserve Bank of lending restrictions on mortgage deposits largely mitigates those possible steps, should they be enacted.
Christchurch is bucking the nationwide trend somewhat and the recent market here has been fairly flat. Over the past 12 to 18 months “sanity” seems to have returned to the post-earthquake Christchurch property market and we have seen prices mainly steady. Based on the most recent REINZ house price index, the median Christchurch house price actually fell very slightly in the past 12 months, the only area of the country where that happened.
Rents too have seen a downturn. Average weekly rents have fallen since peaking at $433 in early 2015 during the residential rebuild, They are now about $365, according to government bond data. This has caused many mom-and-pop investors to reconsider their portfolios, with lower returns and less tenant demand and higher compliance costs, due to new Government regulations, deterring them from buying or causing them to consider selling existing rental properties. First-home sales to those who may have been renting have also increased while prices have been flat and borrowing rates low, also reducing the rental market somewhat.
A number of factors are in play here. The figures are, for example, affected by sales of “as is where is” properties that tend to drag the median down as those properties tend to sell close to land value only. Most other places have few, if any, of these types of property and so are not affected in the same way. We have also seen much higher rates of new homes being built around Christchurch than in most other regions. This was a reaction to the demand unleashed when huge numbers of properties were lost in 2011. There was a lag for a couple of years, as builders developed their strategies and sought permits, but that has largely gone now and subsequently substantial supply has come on-line. When it does, as it has in Christchurch in recent years, prices tend to stabilise - it is, after all, all about supply and demand.
Building costs in Christchurch are higher than in other regions, and the rising cost of new homes also affects the value of existing homes. In most cases it’s cheaper to buy an existing home than build and this fuels demand for existing homes.
But whilst it’s true the local market isn't booming as it has in recent years, it certainly is not crashing either – there doesn’t seem to be a “bubble” about to burst anytime soon. In fact the better way to describe it is “balanced” – a fair market giving advantage to neither buyers nor sellers. The middle to end of 2017, influenced by the election saw a slow down but we have recently seen energy returning to the market - a trend that seems likely to continue. The net result is that we're now moving into our second year of steady house price growth in the Christchurch region.
So what should buyers and sellers look forward to over the next year or two ? Well, it’s not necessarily bad news for either group. For buyers, mortgage rates aren’t expected to rise until the middle of next year, remaining at historically low levels and offering great opportunities, especially for first home buyers. Buyers can borrow money cheaply and that is encouraging new buyers to enter the market and existing owners to upgrade or look into rental investments.
Supply is also still strong, meaning buyers have lots of choice, though new stock coming on line is starting to slow a little as rampant post-earthquake demand has now largely been met. Nick Goodall, senior analysist at CoreLogic says Christchurch’s situation is different from any other area in the country. The city is at “a vastly different part of the property market cycle” than other centres. Christchurch is in a consolidation phase with adequate supply, slow population growth and slowing residential construction.
Another of the advantages that Christchurch buyers enjoy are lower prices than many others around the country face. Nationwide the median house price in February 2018 was $530,000, while the Canterbury median sat at just $456,750. Buyers often get to purchase a better product too, as after the earthquake many poorly built homes
destroyed by the shakes were replaced with new, modern builds. So more for less than other areas. Buyers overall face a less stressful experience and a better chance of success than they may have had in some time.
Sellers too should not feel distressed. Though price rises have now slowed a little in Christchurch and the median is lower than in other centres, the equity appreciation that most home owners have experienced, especially since the earthquakes, will thrill sellers. Home owners who bought recently and are selling within a short period of time may not see too much appreciation, but that is normal. On the other hand, those who have owned for a number of years will have seen good equity rises – in some cases quite spectacular tax-free windfalls! In the greater Christchurch area, median prices are now double what they were in 2004 and some specific areas, such as Selwyn and Waimakariri, which both saw significant post-earthquake population growth, have benefitted even more. If sellers decide to wait, the trend is inevitably upward and in a recent article bank economist Tony Alexander pointed out that historically, house prices have risen at double the rate under Labour than National. Demand is steady-to-improving. At Harcourts Holmwood, we experienced our best ever month in November 2017, and though some sellers (and amazingly some real estate companies) believe auctions can’t be successful in a stable market, since the start of the year we have seen great auction results with clearance rates well over 50% and 75% in the past few weeks.
Days to sell may have risen year-on-year over the past twelve months across the country, but Christchurch remains below the national average according to REINZ. More Christchurch properties have also sold in that same period compared to the year before, reflecting results seen nation-wide and the number of $1m+ properties has also increased.
At the end of the day, you should sell when you are ready to sell. Homes sell in all markets and in any season. Your advantage comes from presenting your property well, superb, thoughtful marketing and working with the best real estate company and consultants.
If you are thinking of selling, please give us a call and let’s chat.
Please note that the opinions expressed herein are those of Martin and Laurie Sutton and are not necessarily the views of Harcourts, Harcourts Holmwood or any representative thereof.
Statistics noted were sourced primarily from the website and Facebook page of the REINZ*
(Real Estate Institute of New Zealand) and are publicly available.
Any discrepancies or inaccuracies are unintentional and those who are preparing to undertake a real estate transaction are recommended to seek professional advice about those transactions before entering into any such transaction.